Indian Idol, licensed from the American Idol format, went on air on Sony Entertainment Television in October 2004. The talent hunt for singers had already been a huge hit in the US. The show was given all the build-up that Sony gave Kkusum or any of its other big soaps -- hoardings, teasers, and a behind-the-scenes look at some of India's would-be singers crying in their bathrooms.
Not surprisingly, Indian Idol's first season was an instant hit. But what took Sony by surprise was the overwhelming number of people who chose to vote by SMS. People raved and ranted about their favourites getting ousted; others plotted to get the ones they wanted out -- public opinion was all about the power of texting.
During the voting period from November 2004 to March 2005, Indian Idol got more than 55 million votes via SMS. At Rs 3 per SMS, that is Rs 16.5 crore (Rs 165 million). The telecom companies made Rs 11.5 crore (Rs 115 million), and Sony about Rs 5 crore (Rs 50 million).
Eighty million people armed with handsets want to be entertained when they are travelling, waiting or simply living. And they are willing to pay for it. It is a combination that is pushing scores of media companies, eight telecom operators and over half dozen aggregators (mobile content or mobile solutions companies) to offer a host of data services -- from contests and ringtones to weather forecasts, games, banking and astrology services, among dozens of things -- on the mobile phone.
As these three main protagonists -- media, mobile and aggregators -- get together, a Rs 2,300-crore (Rs 23 billion) market has been created, says a Lehman Brothers report. (This includes texting and is not just operator share.)
Media companies are using mobile phones to interact with viewers, listeners or readers and, maybe, generate a little money. They could be using it to entertain them or promote a myriad products or services. This is where aggregators such as Activemedia Technology, Mobile2win or Hungama act as a link between media and mobile companies.
It is a kaleidoscopic world where the three players hold hands, then move on, then come together again. Yet, a few things are clear -- music, films and the power to change lives (such as Indian Idol) have so far been the favourites of consumers across the world. Going by global experience (and India is not far behind), it would seem as if TV and the ability to buy and sell things over the phone will take off next.
As that happens, the evidence that the mobile phone will become another media platform, just like direct-to-home (DTH) or cable or the Internet, is mounting.
Consider some of it: In the United Kingdom, there are six different mobile TV technologies being tried out. Nokia and O2 (a mobile operator) are claiming that in the trials they ran, people watched mobile TV for three hours a week as compared to rival BT and Virgin Mobile's one hour. Nokia and O2 say that they offer more choices with 16 channels against BT's six. Both, incidentally, are using different mobile broadcast technologies.
In South Korea, mobile music is on the verge of overtaking physical music sales. On the other hand, there is a battle brewing between South Korean mobile operators and broadcast companies, with the latter bypassing operators to offer TV directly to mobile users.
Last year saw congestion on networks that offered unlimited usage of mobile TV and video-on-demand. As a result, prices are dropping and analysts are worried about the returns on expensive licences that telecom companies paid for. They are exhorting companies to offer differentiated programming instead of plain video clips. Sounds familiar?
This rush to meet the demand for 'mobile snacking' has raised several key questions. Telecom companies are used to selling voice, a plain vanilla product. They are used to being in control of both access and billing.
Can they survive in the hurly-burly world of entertainment, pay huge amounts of money for film and sports rights, or create new channels? Can they create that unique blend of short, snappy, yet creative shows, songs or information products that mobile snackers are demanding? Can they, ahem, become media companies? And can media companies remain mere suppliers? Will we see some joint ventures soon between mobile operators and some of the larger media companies, a la Europe? These are questions to which there are just hints as answers.
See the credits at the beginning of any Indian film and compare it with Hollywood releases. Almost every major Indian film company now has a mobile partner promoting the film through contests, wallpapers, etc. It also makes a neat packet on ringtones and ringback tones. Ninety per cent of ringtones is film music.
In 2005, the Indian music industry got about Rs 140 crore (Rs 1.40 billion) or 20 per cent of its legitimate revenues from mobile music. "These days film producers stress on mobile marketing," says Shatadru Sarkar, deputy manager (new media), Saregama. "A hit film can generate Rs 1-1.2 crore (Rs 10-12 million) -- about 5 per cent or more of an album's sale -- on mobile revenues," says Shridhar Subramaniam, managing director, Sony-BMG. Its big mobile hit of the year is Rang De Basanti.
The big media firms -- Star, Sony and BCCL, among others -- have set up entire divisions to plug into these 80 million consumers. Compare that to the number of TV homes (108 million) or Internet subscribers (7.5 million), and you get a true picture of its size and potential.
Star CEO Peter Mukerjea has maintained that mobile telephony should eventually bring in 30 per cent of the company's revenues. And Sony will set up its own backend for digital downloads this year.
This is not only about mobile operators being pressurised by voice margins and media companies looking for an extra buck. Advertisers are trying their best to get their two bits in. So, Thums Up has a game it designed with Mobile2Win, Castrol has its own ringtone (and 100,000 people actually downloaded it), and Reliance offers bill payment on R World, railway bookings, and even exam results. "The idea is to create a very happy marriage between distribution and content," says Rajesh Sawhney, president, Reliance Entertainment.
The sentiment is, well, bullish. "2006," declares Gautam Advani, director (multimedia), Nokia India, "will be the kick-off year for mobile entertainment." For instance, last year, Star launched 'mobisodes' -- one minute clips of its popular comedy show The Great Indian Laughter Challenge.
Says Viren Popli, senior vice-president, (interactive), Star India: "The VCR gave back to consumers the concept of time; the mobile will give them back the concept of space. You can consume entertainment when you want and where you want it."
"The mobile phone has become part of your persona and is an extension of your personality," says Naveen Chopra, chief marketing officer, Hutchison Essar. Agrees Mahesh Prasad, president (applications and solutions group) Reliance Communications: "A ringtone is what you are saying about yourself. You can't put a price to it."
Maybe you can't, but operators do put a limit to what they share with media companies -- about 20-30 per cent. There is already a feud going on about that. With the limit on spectrum, operators' scope to offer broadcast quality TV or other things is restricted. Then there is a limit to handset capacity. Just 15-20 per cent of the phones in India have colour screens and/or cameras (though the number is growing very fast).
And there is a limit to what music and SMS can do. "SMS and ringtone is a low-hanging fruit, film music is a commodity," says Kaushal Modi, head (licensing and telephony), Sony Entertainment Television.
The pushing and shoving to offer the next level of services -- mobile TV, Internet and commerce -- has already begun. "It is clear that VAS (value added services or mobile data) will move beyond voice and SMS," says Kanwalinder Singh, president, Qualcomm India. Qualcomm's MediaFlo is one among half a dozen technologies such as digital video broadcast - handheld (DVBH) that is battling to become the standard for mobile TV broadcast services.
For two years, Nokia has been spending time, money and effort in educating dealers and consumers on high-end applications. By the end of April, it will probably launch the N-series, a range of phones with the capability to receive multimedia services like radio, TV or the Internet. This also contains what is internally referred to as the 'iPod killer', the N 91.
India's largest media buying company Group M announced a tie-up with Tagit, a Singapore-based mobile technology firm, earlier this year. Tagit is a tagging software. Think of the possibilities: if you could just aim your phone at a hoarding or a TV or a theatre screen and respond to an advert or take part in a contest.
Why we are plugged in
Shankar Narayanan, president, Tagit, refuses to share much except that Tagit is talking to a host of Indian companies to offer everything from marketing to ticketing products. For instance, if it had a deal with PVR Cinemas, you could choose the film from your mobile, book the ticket and also make the payment. The fact that Tagit is already seeking to market its technology in India says it all.
In Europe, where mobile telephony is way ahead on the usage curve than in other parts of the world, mobile data is a healthy 10-20 per cent of most operators' revenues (the operator's share is just one part of the mobile data market; it does not represent the entire pie). In South Korea and Japan, it forms 20-25 per cent. In India, it is between 7-10 per cent of most operators' revenues, which is a level that China Mobile reached at 20 per cent mobile penetration, according to the Lehman Brothers report (one of the best pieces of research on the mobile market).
India hit it at under 10 per cent penetration. By 2010, the report estimates mobile data to be a $10-billion (Rs 43,000-crore) market in India.
There are some generic reasons for this surge. India, with its love for films and entertainment, is one of the world's fastest growing mobile markets. But the real reasons are linked to consumer behaviour and culture. The first is that India is similar to Japan, Korea or the European Union where mobile data has taken off.
"All these countries have a mass transport system. Studies show that a big reason behind the success of mobile VAS in Japan is the fact that people have a lot of time on the go. The US is mostly about self-driven cars," says Prasad.
The second reason, says Surendra Jain, managing director, WestBridge Capital Partners, is that "customers are cool with paying for information on the mobile unlike the Internet." This point cannot be over-emphasised. Even if competition brings the price of data services down, which it will, the fact is that consumers will continue to pay for it. The basic context -- that this is not free -- has been set for good.
The third is that mobile data services are, at times, plugging in a very real need for entertainment and information in smaller towns and villages, where the mobile phone is bridging the digital divide (that the Internet was supposed to). The ability to check on railway data or weather is a real enabler that people in poorly- connected parts of India are more than willing to pay for. In others, where the reach of cable and cinema is limited, the mobile is a great stand-in.
"The demand for more localised, regional content is increasing. For operators, the growth is going to come from non-metros. Only 60 million people know English.Hindi is where the eyeballs are," says Raj Singh, director, Activemedia Technology. Note that mobile data growth is coming not just from the metros but from across the spectrum of A, B and C class cities.
The fourth is that Australia and India are the only countries in Asia that have collecting societies -- the Indian Performing Rights Society (IPRS) and Phonographic Performance Limited (PPL). According to rates prescribed by PPL, anywhere between 25-40 per cent comes back to music firms. That has helped Indian mobile operators quickly hook on to music -- the most natural (and lowest bandwidth hogging) driver for data services globally.
"In other Asia Pacific countries, you have to go to each music company and collect separately," says Sudhanshu Sarronwala, CEO, Soundbuzz. The lesson will prove to be important for other industries eyeing the mobile data market. If licensing is difficult, it puts off aggregators and operators, and leaves the market open to pirates like in Indonesia.
Why mobile and media want it
Airtel started offering services like Dial-a-Pizza or travel information in 1995. It launched Hello Tunes in 2004. That, says Hemant Sachdev, director (marketing and communications), Bharti Tele-Ventures, was the first big learning on mobile data. "The Indian consumer is willing to pay a premium for VAS," he says. And mobile companies need that premium as the pressure on voice revenues keep increasing. Consider the math. The effective rate per minute has moved from Rs 1.50 to Re 0.95. Most telecom operators have squeezed costs as much as possible.
According to Don Price, director (networks), costs per minute have been chopped from Rs 1.25 to Re 0.87. "It is on its way to becoming Rs 0.8.," he says. Yet average revenues per user and margins keep falling. The sheer momentum of growth, the number of operators and the volume of usage means that the downward pressure on costs continues. At Rs 6 per minute, Airtel's 646 services make much more money than the average Rs 1-2 per minute that voice does.
Typically, data sells at anywhere between Rs 3-30. The Lehman Brothers report says that as data share goes up to 60 per cent or more, the earnings before interest, taxes, depreciation and amortisation (EBITDA) from data revenue could go up to 65 per cent or more. Compare that to 30 per cent or so from voice.
Getting those margins is a bit chicken and eggish. Till there are enough subscribers, it makes no sense to invest and subscribers will not ask for it if there isn't enough on offer. If data revenues jump substantially, then a 3G network (with more bandwidth or ability to carry data) is a necessity.
That would mean an investment of about $50 million-88 million depending on the options. This is just for one operator. Does a Rs 2,300-crore market, growing at 30 per cent, justify it? Yes, say operators across the world. All of them have bid crazy prices for 3G licences.
For media companies, currently, the mobile connection is more about interactivity and less about revenues. Radio Mirchi gets 40,000-45,000 SMSes a day. As a radio station, it is a great tool for engaging listeners. Ditto for TV, newspaper or outdoor companies. Even within this interactivity, there is some money to be made like Star did with KBC2. For media buying and planning firms such as Group M, all the work with mobile phones is "brand centric," says Tushar Vyas, its national director (interaction).
That means that if Fa's creative and media plan demands that there should be a mobile play, say, a contest, poll or plain branding, then Group M will look at content or partnerships where it can promote Fa on the mobile phone. The only segment where it has converted into serious money is music. Now music companies are moving a step further.
Saregama makes half its money on ringtones through its catalogue. It "sells nothing but ringtones. With new releases, we have the rights to images and wallpapers", says Sarkar. That brings in more revenue from mobile rights.
Why do they fight?
Of Reliance's 18 million subscribers, more than 10 million use data regularly. At the end of December 2005 R World, its mobile portal had 5.3 million visitors. About 32 per cent of the portal's (undisclosed) revenues came from ringtones and 20 per cent from films. That means roughly half the data revenues of one of the largest operators in India come from film-related content. Games and cricket form a respectable 8-9 per cent each.
That is one of the reasons why the Anil Dhirubhai Ambani Enterprises find that having a share in all pieces of the media pie -- TV, radio, film production, distribution and retail -- makes sense. Other operators, too, are trying to create in-house content, some to avoid commoditisation and others to keep a higher share of revenue. This is where we come to the big bugbear between the two; revenue sharing.
Currently, the Indian market is split roughly at 60:30:10 between mobile operators, media companies and aggregators. Mobile operators argue that they make the investment and control the consumer, so they should keep a lion's share of the mobile data pie.
Prasad of Reliance says that internationally, operators pay revenue share only on the basis of actual downloads. In India, the figure on which this is calculated includes network usage and subscription fee and, therefore, the percentage that comes back to the operator has to be larger. Media companies protest about this but are largely helpless. That is because mobile companies simply use the fact that media is a fragmented business, where the next guy will undercut you to its advantage.
Eventually, this will change. "In most developed mobile entertainment markets, we have seen operator share come down to the 10-20 per cent range. It has in consequence led to fantastic growth," says Sarronwala.
In Japan, the operator share is 9 per cent, in the Philippines, it is 60-70 per cent and in China, the second largest VAS market after Japan, it is 15 per cent. As the total amount of data revenues go up, the operator share goes down and his dependence on the content companies increases. So, expect the friction levels to rise as mobile TV and much more richer content come closer.
What is the way out?
Mobile companies might do well to take a leaf out of media companies' books -- owning a platform does not necessarily make you good at content. Many of the good film companies and almost all the music companies do not own any retail presence. A user is willing to pay to watch on Ten Sports the same cricket match that he gets on Doordarshan for free.
It is not control over content, but the ability to offer loads of it that is relevant and connects, which will distinguish one good mobile data service from another. Maybe joint ventures or equity stakes in content companies will help. But they are just security blankets. Ultimately, in a fragmented, oversupplied content market, it should be easy to get good stuff if you have a sense of what will work and what won't. Media companies have a nose for it, mobile companies don't. You could argue that, maybe, even media companies are not clear on how to create programming for this new 'mobile snacker'.
There are several things that could happen. Mobile and media companies could build the skills (difficult) or buy the talent to do it. They could join hands to do it. A third set of companies such as Hungama or Soundbuzz might turn out to be better at picking and digitising what works best.
So, as the need for differentiated content, especially with TV, songs, news and more audio-visual content becoming important, expect much more poaching from programming departments of TV channels, and lots and lots of loose alliances.
Why TV is not yet mobile
The moment you start discussing mobile TV is when all the debates over mobile data services or its possibilities come to a halt. That is because showing TV on the mobile is essentially about high-powered terrestrial broadcasting that demands two things. One is spectrum or the space on the airwaves that mobile networks need, and two is handset capability.
Take the first one. Spectrum determines the quantity of data that networks can send over the airwaves or the bandwidth. A good mobile TV experience needs 256 kpbs. That will allow you to watch the complete video of a song or a short mobile film or a 8-10 minute episode of a popular show.
Spectrum, however, is allocated by the government "in eyedrops," says Bharti's Price. Much of it, due to GSM operators such as Hutch and Bharti, has not yet been freed by the defence services. The result is that India has one of the lowest spectrum allocation per GSM operator in the world, about 6 Mhz against, say, over 25 in the UK or over 20 in China. Most of them fool around with the existing spectrum sometimes at the cost of voice quality, to offer data services.
"Where 3G (high-bandwidth networks) comes is when mobile TV will happen in India," says Popli. The 'when', says Neeraj Roy, CEO, Hungama, "has to be addressed in 12 months."
That is if data has to keep growing. The European experience shows that mobile TV can push up the data revenues from 10 per cent to 15 per cent for operators. The usage is similar to what people do at home, says Olivier Pascal, consultant, Analysys Consulting.
Pascal sits in the centre of the action at the Analysys office in Paris, where several tests on mobile TV are being done. "There are already JVs between the operators and broadcasters, for instance, Canal Plus and TFI," he says. In France, the regulator has allowed some spectrum on the digital terrestrial transmission (DTT) network for mobile TV. (In India, any terrestrial broadcasting is a government monopoly.)
The other challenge for mobile TV even in the mature European market is handset technology. It is just about beginning to offer good quality video broadcast. "For the moment, devices sold don't allow you to spend much time in front of a mobile phone," says Pascal. In India, "only 10-15 per cent handsets are net enabled," says Arun Gupta, COO, Mauj Telecom.
In the UK or Japan, handsets are sold with pre-configured buttons. So if you buy a Nokia handset, it has a button with an Internet icon. All you have to do is press that. In India, since bundling is not encouraged, the kind of work that operators and handset manufacturers can do to customise handsets for ease of actual use of operator linked services is limited.
The third, albeit smaller, challenge is "the size of real estate (screen) on which the message or content can be displayed," says Singh. But even he and most others agree that eventually mobile TV will be about plugging into entertainment or information on the go. You will watch TV at home, listen to radio in the car, and so on. The mobile cannot replace other media, it will simply complement it, like the iPod.
So, can TV go mobile and can mobile become media? There's no doubt that TV/entertainment will be the flagship product or the driver for other products on the mobile. The likelihood that you will spend money clicking the 'buy' option on something while watching a good quality short sitcom is higher than if you were just downloading a song. The ability to make consumers spend more time and money will depend on the mobile operators' ability to crack the content game.
Wait, then, for some new movie moghuls to emerge.
Additional reporting by Aditya Khanna